UAL Corp to buy US Airways for 4.3 bn

NEW YORK, MAY 24: UAL Corp, parent of United Airlines, the world's largest airline, on Wednesday said it agreed to buy long-struggling US ...

NEW YORK, MAY 24: UAL Corp, parent of United Airlines, the world8217;s largest airline, on Wednesday said it agreed to buy long-struggling US Airways Group Inc for 4.3 billion, excluding debt, in a deal that is expected to have wide-reaching implications in the industry.

The companies said the deal, which has been approved by both boards, should be completed in 2001 and will add to UAL8217;s earnings per share by 2003. The purchase will enable UAL to capitalise on US Airways8217; intricate route structure in the US Northeast. US Airways operates hubs in Philadelphia, Pittsburgh, and Charlotte, North Carolina; and flies to 206 destinations around the world, including 38 US States, Europe and Canada.

Shares of US Airways, which has experienced nearly a decade of poor performance despite route restructuring, labour negotiations, management overhauls and a name change, closed at 25-15/16 on the New York Stock Exchange on Tuesday but soared 24 points to nearly 50 in before-the-bell trading.

With the deal, US Airways seems to be acknowledging its inability to rise above nearly a decade of poor performance despite many route restructurings, labour negotiations, management overhauls and a name change. It previously had been known as US Air Group, but became US Airways several years ago.

US Airways has suffered numerous setbacks in the past 10 years, including an embarrassing admission from billionaire Warren Buffett that his 358 million investment in the airline in 1989 was quot;a mistakequot;.

In 1996, the carrier hired former United Airlines President Stephen Wolf to help turn it around. Despite hopes that Wolf could transform the airline, US Airways has still faced numerous problems. It narrowly averted a shutdown last fall when it reached a contract agreement with 7,000 mechanics and cleaners, but posted an unexpectedly large loss in the first quarter of 2000.

Despite widespread views that mergers would benefit the cyclical sector, most carriers have been stymied in their acquisition attempts because of antitrust concerns. US Airways had previously held unsuccessful talks with both United and rival AMR Corp, parent of American Airlines, about a deal.

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The government also has kept close watch on previous acquisitions and alliances in the industry. In 1998 the federal government took Northwest Airlines Corp and Continental Airlines Inc to court over their proposed alliance which involved Northwest taking a majority of the voting stock in Continental. The trial is set to begin later this year.

Last year the Justice Department filed a suit against American Airlines alleging the carrier illegally tried to drive smaller airlines out of its Dallas hub. And just last week the Justice Department said it was investigating a plan funded by five US airlines to form a joint Web site to sell tickets.